Working Paper: NBER ID: w25877
Authors: Markus K. Brunnermeier; Dirk Niepelt
Abstract: We develop a generic model of money and liquidity that identifies sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan,'' cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.
Keywords: money creation; monetary system; inside money; outside money; equivalence; CBDC; Chicago Plan; sovereign money
JEL Codes: E40; E41; E42; E44; E51; E52; E58; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| swap of public money (H87) | credit allocation (E51) |
| CBDC implementation (E42) | financial stability (G28) |
| liquidity payoffs (G19) | seignorage rents (E49) |